Realtors, insurance agents and top elected officials are warning of a major blow to the real estate industry if the rate hikes go through. Some potential home buyers already are getting cold feet because of the new rates, and experts are warning of more to come.

Florida’s two U.S. senators, Democrat Bill Nelson and Republican Marco Rubio, have come out against the rate increases, along with Republican Gov. Rick Scott.

The U.S. House of Representatives already has approved postponing some of the increases for a year. But it is unclear whether there are enough votes in the Senate to secure the delay, or whether the issue can gain traction with lawmakers consumed by gridlocked over health care reform, budget and debt ceiling issues.

Florida has more than a third of the nation’s flood insurance policies, including 109,000 in Sarasota and Manatee counties.

Reforms approved last year to the National Flood Insurance Program mostly affect older properties that were not built to current flood elevation standards. Sarasota and Manatee have roughly 30,000 of these structures in high-risk zones, and more will be added as flood maps are revised over the next year.

Starting Tuesday, rates will begin increasing by 25 percent annually for many older, low-lying properties in high-risk zones until the government decides premiums are adequate to cover the flood risk.

But the most significant rate hikes will occur when a property is sold. Instead of phased increases, the new owner must pay the “full risk rate,” which is likely to be exponentially higher than existing premiums.

Sarasota insurance agent John Dauenheimer said his office consulted with a Realtor this month on a Siesta Key home sale that now seems likely to fall through, in part because of flood insurance costs that would increase by 400 to 500 percent under the new rules.

The flood rate quoted by Dauenheimer’s agency, Insurance Service of Sarasota, on another Siesta Key home recently was $6,000, up from $1,500 for the previous owner.

“I think we’re in for a little shock,” Dauenheimer said. “The system is in for a shock in our area.”

Sarasota Association of Realtors President Roger Piro said flood insurance has been a hot topic at industry gatherings from Washington, D.C., to Sarasota.

The new flood rates could stall sales and hurt real estate values in some areas, Piro said.

“We’ve finally got the market moving in the right direction so anything that would slow it down we’re concerned with,” he said.

Gov. Scott raised the same point in a letter to Nelson and Rubio last week.

“Homeowners may find it impossible to sell their properties to a new owner who will be shocked with the massive premium increases required to secure a mortgage,” Scott wrote.

Nelson sent a letter back to Scott on Tuesday blaming “the current state of gridlock in Congress, caused by a small minority” for inaction on the flood insurance issue. The senator proposed legislation this week that would delay new flood rates.

Rubio responded to Scott Thursday, saying, “I oppose these sharp rate increases because they will hurt working families by throwing another obstacle to economic prosperity and security in their way.”

Nelson’s legislation or other language delaying the flood rates could be attached to a budget bill up for consideration in the coming days, or a stand-alone measure could pass. Senators from Louisiana, New York and other areas that experienced widespread flooding in recent years also have been highly critical of the rate increases. Lawmakers were working this week to build broader support for a delay.

But such moves likely will just postpone the issue for a year, and “not offer longterm solutions,” Rubio noted.

Rubio suggested phasing in increases triggered when a home is sold, along with other changes to the Biggert-Waters Flood Insurance Reform Act. But he agrees with the overall effort to “bring financial stability” to the flood insurance program.

That was the idea behind Biggert-Waters, which passed last year with widespread support in the House and Senate. The legislation increases flood rates to help cover large debts incurred after Hurricane Katrina and Superstorm Sandy. It will take decades to pay off the debt, leading critics to declare the flood program fiscally unsound.

Free-market advocacy groups have urged lawmakers not to delay the rate hikes.

R.J. Lehmann, a senior fellow with the Washington D.C.-based R Street Institute, said the reforms may be painful for some, but are necessary.

“This is an issue of protecting taxpayers from undue risk and not subsidizing and encouraging risk tasking,” Lehmann said.

Last modified: September 26, 2013
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